Illinois 2019 First Time Home Buyer Programs
Buying a home can be challenging, especially when it comes to choosing the right mortgage product, finding a lender, and estimating your affordability. Below we discuss the standard and nationally available mortgage options as well as focus on Illinois programs that feature down payment assistance.
National Home Buyer Programs
While we always recommend putting down as close to twenty percent as possible, conventional mortgages are often obtainable with as little as 3% down. Keep in mind that borrowers who put less than 20% down are required to pay private mortgage insurance until the value of their equity reaches 20–22% in the home.
To qualify for conventional mortgages, borrowers generally need a minimum credit score of 620 with benefits (lower costs and rates) kicking in for those who have scores of 720–740 or higher.
Insured by the Federal Housing Administration (FHA), these mortgages generally feature more relaxed standards and are attractive to borrowers with lower credit scores. Borrowers with credit scores as low as 500 can obtain a mortgage but must put at least 10% down. If your credit score is at least 580, you can put as little as 3.5% down.
A key differentiation is the fact that FHA loans carry mandatory insurance throughout the life of the loan, which can cost a couple hundred bucks, so the tradeoff between lower down payment and higher cost is one to be considered if you have a higher credit score and qualify for a conventional mortgage.
These loans are offered and backed by the US Department of Veterans Affairs (VA) and are offered to Military members, veterans, and surviving spouses. The advantage to VA loans is no down payment requirements and no minimum credit score thresholds. VA loans do, however, often carry an upfront fee worth 1.5–2% of the purchase price.
An important note for zero-down payment borrowers: with no down payment, you initially have no equity in the house, and if the market goes down, you risk being underwater on your mortgage (where the value of the debt is more than the home). This can be challenging if you’re subsequently unable to make payments or need to sell your home before the market corrects.
Most commonly, but not exclusively offered, to rural area dwellers, USDA loans feature the same zero-down payment requirement of VA loans for low-income borrowers. These mortgages are only available in certain areas and for those with credit scores of 640 or higher, there are additional advantages when it comes to processing and costs.
Illinois Home Buyer Programs
For Illinois residents, the Illinois Housing Development Authority (IHDA) offers many programs that feature down payment assistance. In general, these programs are available to borrowers subject to the following:
· Credit scores of at least 640
· Ability to make monthly payments and satisfy county household income limits and purchase price limits
· Contribute the greater of $1,000 or 1% of the purchase price
· Intention for the property to be the primary residence
· Completion of homeownership counseling
For more information on the IHDA programs, click here.
This program offers down payment assistance in the form of 4% of the home price, up to $6,000 with the cash forgiven monthly without payment over ten years. This program is available for the standard mortgage products above.
Here borrowers are eligible to receive 5% of the purchase price in cash assistance, maxed at $7,500 in the form of an interest-free loan that does not require monthly payments to repay. Instead, given this is deferred, the loan is paid off when the borrower refinances, sells, or pays off the mortgages.
As the name indicates, this loan, which provides the borrower 10% of the purchase price up to $10,000, is an interest-free loan that is paid back over ten years (i.e. in addition to the mortgage payment).
This program provides $7,500 to be used for first-time buyers towards down payment or closing costs, contingent on living in the home for at least five years. If you do not meet these requirements, the cash must be paid back.
This program is also available to repeat buyers in certain areas.